For many people, the tax filing process is not a pleasant experience. It could be complex and confusing. And one simple error might mean paying up too much tax or facing an underpayment penalty. But what about tax fraud? It’s not just an extra headache to deal with but could also give rise to severe complications.
Last year, the IRS identified $2.3billion in tax fraud. Now, tax fraud typically includes 2 categories of activities: intentional evasion of tax payments and tax-related crime committed under your name without your knowledge. Of course, the first category is self-explanatory and is very much within your control to prevent. In fact, every citizen has a duty to file their taxes on time and with accurate details and should be prepared to face the outcomes if they failed to do so.
But the second category of tax fraud is much more complex and is often the outcome of a data breach. For example, it could result from a hacking attack or an IRS identity theft that compromises your personal information. These could lead to damaging consequences and might get you entangled in a lengthy process to reverse their negative impact. So, in this article, we’re going to explain how you can detect and tackle this type of tax fraud with a few simple and proactive steps.
How can you detect tax fraud?
A letter from the IRS is the first giveaway for most people faced with tax fraud. It might state that your tax refund claim is already filed and processed earlier. Sometimes, it could be a notice to inform you that you owe more tax. Or if they get wind of some suspicious activity in your accounts, they might write to you to inquire more details.
Receiving an unexpected call from the IRS is another red flag to note. Remember, their first mode of communication is always via post. Even if they need to visit you, they will first reach out with a letter. So, any caller that claims to represent the IRS is likely trying to target you for an imposter scam.
Can you prevent the threat of tax fraud?
The good news is, there are preventative measures that could help minimize the threat of tax fraud. Remember, there are several strategies criminals use to target victims for their fraudulent activities. Anticipating their advances and taking effective measures to avoid them can help you outsmart these criminals and protect yourself.
1. File your taxes in advance
Some people delay the tax filing process until the last minute. This could create more opportunities for a criminal to submit a fraudulent claim before you make the legitimate filing. So, keeping track of deadlines and starting ahead is essential. It could also give you enough time to prevent errors.
2. Protect your SSN and tax ID details
Data such as tax identification details and SSNs can expose you to identity theft when compromised. So, it’s important to secure these data. Keep physical documents containing such information in a locked cupboard or safe. Use a shredder when you need to dispose of them. Protecting digital data is equally critical. These are easier to share or steal compared to printed documents. So, avoid storing them in your laptop, phone, or shared digital storage spaces.
3. Watch out for phishing scams
IRS scams frequently involve phishing attacks. For instance, you could receive a sudden call from the IRS to verify your SSN and tax ID. These requests could also appear via email or even in person. Remember, criminals could pose as IRS officials and trick you into sharing personal information. They could then use those details to file a tax return in your name or commit other similar crimes.
4. Avoid responding to unexpected IRS calls
Some IRS imposter scams involve demands for overdue tax settlements. These fraudsters could threaten to get law enforcement involved and dupe you into making an immediate payment to avoid charges. And they will often demand payment using a wire transfer or some other mode, such as gift cards that are difficult to trace back.
But if there are overdue taxes, the IRS will first inform the taxpayer in writing. So, remain vigilant of any sudden payment requests made over the phone.
5. Hire a reputed tax preparer
Tax preparers get access to a significant amount of personal and identifiable data. So, there’s always the opportunity to commit tax fraud. This makes it critical to select a reputed tax preparer to ensure you benefit from a qualified professional.
Also, watch out for any unusual requests, for example, to sign on incomplete forms. Be particularly wary of ghost preparers who would refuse to sign on the tax returns they prepare. These malicious actors often make money by misleading clients with false or inaccurate claims.
What should you do if you become a victim?
Taking effective steps as soon as you identify tax fraud is essential to minimize damage. Here are the essential steps to follow:
• Inform the IRS. There are several useful links on the IRS website to report different types of tax fraud, such as those involving tax preparer scams and fraudulent IRS emails.
• Report the incident to the Federal Trade Commission on their designated website.
• Report to your local police.
• Get the support of a tax identity theft recovery service. These are professional services that specialize in helping you lessen the impact with a proactive recovery plan.
• Keep the credit bureaus informed. Also, consider placing a credit freeze or an extended fraud alert.
By becoming a victim of tax fraud, you could expose yourself to severe financial loss and various unforeseen consequences. So, effectively tackling such an incident is critical to mitigating damage. But adopting preventative strategies is even more essential, so you could minimize the overall risk of experiencing tax fraud.